Pair trading ES/NQ

[polee2000]

Quote from JangoFolly:

Charles,

I did some testing on the ER2/YM pair (1:1 contract ratio) using intraday tick data (continuous contract) on a +/- 2 SDs from a 60 minute-period, 200 period SMA trigger over the period May 2004 through Sept 2005. It made several profitable trades, but the drawdowns were surprisingly ugly and eventually it took a trade that didn't return to the ratio SMA at entry by the end of the data series (open trade for 12 months). I had the system not take any trades in expiration months to avoid holding a trade at rollover, and to give my SMA indicator time to normalize after rollover. Do you think these two products are simply too dissimilar for this type of strategy? Were you using 1-min or EOD data (or other)?

Thank you.

Regards,

YES, ER2/YM is no different from taking a directional trade.

 

[stonefreetall]

Just curious if anyone trades pairs vs. the es/nq.... if so what types of profitable strategies does one use... anything to look for in particular?

Pair trading is great for temporarily hedge risk in swing trading when trying to pick tops and bottoms. Instead of going counter trade, hoping to be right , you mitigate risk by hedging, with a profit taget 70 percent of the distance between stoploss and entry. The hedge stopless will be equal to the profit target. The loss on the will be considered the primium for averting risk. If you do it at important support and resistances, with a potential upside it is worth it. Think of it in terms of options.

 

[viruscore1]

Yogi Berra says it the best - "Lets pair up in threes."

 

[comagnum]

I pair trade every once in a while when one of the stock indexes starts showing a new strength or weakness in relation to the other indexes or at seasonal times when an index is historically its strongest. When you nail them you have a fairly lower risk trade that can run a profit up to a few months.